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Mack-Cali Realty Corp. (NYSE:CLI)

Q3 2012 Earnings Conference Call

October 25, 2012 10:00 ET

Executives

Mitchell Hersh – President and CEO

Barry Lefkowitz – EVP and CFO

Analysts

Jamie Feldman – Bank of America

Craig Mailman – KeyBanc Capital Markets

Michael Knott – Green Street Advisors

George Arbach – ISI

Operator

Good day everyone and welcome to the Mack-Cali Realty Corporation Third Quarter 2012 Conference Call. Today’s call is been recorded. At this time, it is my pleasure to turn the call over to the President and Chief Executive Officer, Mr. Mitchell Hersh. Please go ahead, sir.

Mitchell Hersh

Thank you, Operator and good morning everyone. Thank you for joining Mack-Cali third quarter 2012 earnings conference call. With me today is Barry Lefkowitz, Executive Vice President and Chief Financial Officer.

As it is custom, on a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although, we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to our press release and annual and quarterly reports filed with the SEC for risk factors that could impact the company.

First, I’d like to review some of our results and activities for the quarter and what we’re seeing in our markets and then Barry will review our financial results. FFO for the third quarter 2012 was $0.65 per diluted share. Clearly we had very healthy leasing activity in the quarter resulting in over 933,000 square feet of leasing transaction and of that total 374,000 square feet were new leases.

Our tenant retention about 56% of outgoing space. And we ended the quarter at 87.5% lease, plus or minus where we finished the last quarter by few basis points.

Rents on renewals rolled up in the quarter by 5.9% on a cash basis, compared to last quarter’s 3.1% cash rolled down and so we did have some very healthy renewal activity within the portfolio. On a same store basis however, it was including the new transactions a more tradition quarter for us where we had same store NOI on the cash basis down about 6.2% and so we believe that we will still for the near term anyway is experiencing continued pressure on NOI on average of about 3% to 5%.

Remaining lease rollovers for 2012 are only 2% of base rent or little more than $12 million.

Leasing cost for the quarter were just over $3 square foot per year, per square foot, down from last quarter’s $3.10. Not really a trend but still a favorable metric.

And so despite a challenging environment, our portfolio continues to outperform most of the markets where we operate again finishing the quarter at 87.5% in a very challenging environment and still exceeding the least rates in virtually every submarkets that we operate in.

With regard to our activities, I’m very excited to announce that we’ve closed on Tuesday, the acquisition of the Roseland property company, Roseland Partners. And as I’ve expressed, this acquisition marks a fundamental step in a strategic diversification for Mack-Cali, where multifamily residential will be a key component of our growth strategy.

In addition to acquiring the development and nm businesses, we’ve acquired joint venture interest in six operating multifamily properties totaling almost 1800 apartments, one small, condo-residential property, four commercial properties totaling about 212,000 square feet, 13 in-process development projects, which include nine multifamily properties totaling about 2150 apartments, two garages down at the New York Waterway Ferry totaling almost 1600 parking spaces, which will also house Formula-1, which I’m sure you’ve all read about that, as well as two retail properties totaling about 35,000 square feet.

We’ve also acquired interests or options in land parcels, which can support approximately 6000 apartment. The additional 740,000 square feet of commercial estate and apart for 321 key hotel. Location of these properties and our interest extend from the Waterfront and New Jersey to the dynamic submarket and Morris County, Morris town, Urban areas that are be fast becoming very high quality of wide locations and monetize particular for the (inaudible) and the new millennium workers and the young professional of the future.

As well as the greater prosper area, where we will beginning to the development projects in the very near future one probably within the matter of weeks in East Boston and waterfront another one in reviewer Massachusetts just as North. And this is a very exciting energizing acquisition for the company and a new direction for Mack-Cali in the future.

Now turning to some of we’re notable list transactions that we’ve outlined in our quarterly planning those that we spend a fair amount of capital in this quarter for TI and leasing cost which we’re very happy to do by the way. We announced that a strategic transaction with our global partners – HQ where they signed eight new leases totaling over 110,000 square feet in the quarter.

Bringing their total least base with Mack-Cali to over 375,000 square feet. We are all familiar with the premiere operator of work space solutions, the agri based business and ultimately and very often reach more space from Mack-Cali as they grow their businesses in this best-in-class facility.

Those leases include Mount Airy and Basking Ridge, 30 Knightsbridg and Piscataway, Commerce Centre in Totowa, Woodbridge – Mack-Cali Woodbridge, 581 Main Street, 20 Commerce Drive and Cranford. In New York and Westchester, 7 Skyline Drive in our Hawthorne, Mid-Westchester Executive Park, 400 Rella Blvd in Montebello which is part Suffern in New York. And then Pennsylvania, 5 Sentry Park in Blue Bell and imminently we expect to sign our lease in Bell as well.

FedEx Ground Package System extended its term for the entire 66,000 square foot, 600 in Sanford we are very divided with the renewal particularly in light of some of the announcements that have put pressure on these rapid delivery promise.

Business services which is part of it was signed a renewal of 47,000 square feet Moorestown, New Jersey and drive property and so that building which is 84,000 square feet is a 100% lease.

Cablevision Systems signed a lease with us for 39,000 square feet at six executive parking Yonkers, this 80,000 square foot building as well as 100% lease.

In Paramus, NICE Systems, a Israeli company provider of software solution signed a new lease for 35,000 square feet at Mack-Cali Centre 6, in Paramus.

DSM Services a life sciences and life science material company signed a new lease with 32,000 square feet at our Class A Plus 8 Campus Drive building in Parsippany in our Business Campus.

Moving onto some other activities during the quarter, the Board of Directors authorized a share repurchase program under which the company may buy up to $150 million of our outstanding stock, that was announced in conjunction with the acquisition of Roseland Properties and we immediately entered the market well obviously we had to come out of the market due to the quiet period of earnings but we purchased 395,000 shares that total up roughly $11 million in that short timeframe. Once again, demonstrating a commitment through the activities that we have undertaken.

On another note, we continue to be recognized for expertise in property quality of life, superior energy performance a commitments and sustainability to lead certifications and corporate responsibility.

During the quarter, four of our properties received TOBY awards, Building of the Year awards from their local chapters of BOMA. These awards went to 11 commerce drive in our Cranford Business Park and Stamford executive part, both located in Stamford. Westlakes is off its part in their win as well. We also achieved energy start status in a number of properties that once again demonstrating our commitment to energy conservation, reducing operating cost and improving the environment. These buildings included our own headquarters right here at 343 Thornall in Edison.

For instance, Metro center at 51 drive, 500 college, road for instance as well; Taxter Corporate Park in Elmsford and three executive in Boulevard in South Westchester Executive Park in the (inaudible). And so these continue to be part of the profile and program to reduce carbon footprint and demonstrate corporate responsibility as well.

With regard to other activities, we expect to close on the sale of our Strawbridge office buildings, our three small of the 75,000 foot office buildings, down in – were just under $20 million and that’s anticipated to close actually within a week or so. And I can assure you that during 2013 the company will be much more active in recycling capital out of some of our non-core assets, and redeploying that capital in multifamily residential sector of the economy.

With regards to some of the metrics that contributed to our results this quarter, I mentioned that same store on an NOI cash basis was down about 6% plus or minus. Same store occupancy was 87.7%. We have been experiencing reduce the utility cost which have clearly contributed to the bottom line and some anomalies with respect to real estate tax as you recall last year this time.

This quarter we had a very significant tax resettlement that brought in about $7 million to the company during that quarter, and now with more normalized our real estate tax as on a go forward basis. So there you have it. I am sure that we’ll have a lot of discussion about some of these activities following our remarks.

So with the moment, I’ll turn the call over to Barry, who will go through our guidance and our financial metrics. Barry?

Barry Lefkowitz

Thanks, Mitchell. For the third quarter of 2012, net income available to common shareholders amounted to $14.3 million or $0.16 a share as compared to 20.5 million or $0.24 per share for the same quarter last year.

FFO for the quarter amounted to $65 million or $0.65 a share versus $72.9 million or $0.73 a share in 2011. Other income in the quarter included approximately $410,000 million in lease termination fees as compared to $674,000 million same quarter last year.

Included in G&A for the third quarter is $3.8 million in cost related to the Roseland acquisition. Same-store net operating income, which excludes lease termination fees decreased by 6.4% on a GAAP basis and 6.2% on a cash basis for the third quarter. It’s important to note as Mitchell did before that in 2011 we included some significant tax refunds. If we exclude the effect of these tax refunds same store for the third quarter would have been on a GAAP basis 2.5% down and on a cash basis 2.2% up.

Our same-store portfolio for the quarter was 30.8 million square feet, our unencumbered portfolio for the quarter ended totaled 237 properties, aggregating 24.7 million square feet of space, which represented around 80% of our portfolio.

At September 30, our total undepreciated book assets equaled $5.7 billion and our debt-to-undepreciated asset ratio was 34.4%. We had interest coverage of 3.1 times and fixed charge coverage of 2.9 times for the third quarter of ‘12. We ended the quarter with approximately $2 billion in debt, which had a weighted average interest rate of 6.19%. We currently have $223 million outstanding on our $600 million revolving credit facility which includes the recent borrowing to fund the closing of the Roseland transaction.

We’ve narrowed our range our FFO guidance for 2012 to $2.63 to $2.67 per share. WE are providing initial FFO guidance for 2013 in the range of $2.60 to $2.60 a share. At the midpoint our guidance assumes lease starts of 2.8 million square feet versus scheduled lease explorations of 3.1 million square feet.

End of the year 2013 occupancy about 70 basis points lower than our September 30, 2012 level of 87.5%. Development investments of about 30 million in 2013 for wholly owned and joint venture projects, this is our equity share. Including the completion of Phase 2 Headquarters for Windom Worldwide in Parsippany, New Jersey and the start up of the multifamily residential joint venture at Harbor Side in Jersey City.

We assume acquisitions of $250 million primarily from multifamily properties and property sales of 75 million.

And we expect to do long term debt financings of $350 million including an unsecured note offering for at least $250 million.

Please note that under SEC regulation G, concerning non-GAAP financial measures such as FFO, we are required to provide an explanation of why we believe such financial measures are relevant and reconcile them to net income. Available on our website at www.mc-cali.com or our supplemental package and earnings release which include the information required by regulation G as well as are in 10-Q. Mitchell.

Mitchell Hersh

Thank you. In closing, I would just say that we clearly look forward to many opportunities, that are acquisition of the best-in-class in Roseland Partners, best-in-class as a multifamily developer, owner, manager. That in combination with Mack-Cali’s financial strength, our stability in the marketplace, our impeccable reputation certainly in the commercial office sector as a landlord of choice, will result in many successful endeavors for us and in fact will make us the one-stop solution in many respects for real estate needs in several sectors of commercial real estate.

We are planning as Barry commented in terms of acquisitions on, a very near term acquisition in the greater Boston area of the apartment complex that was originally developed by Roseland, owned by an institution which afforded us the ability to essentially negotiate without what was market transaction and acquisition that will represent over slightly in excess of 700 apartments and about $150 million acquisition. And we’re hopeful of finalizing that sort of as we speak.

And we are very confident that we’ll only be the beginning of our acceleration in the multifamily sector in terms of both stabilized properties as well as new deployments and repurposing of some of our land inventory and asset base. So we are very excited and energize about the future and the new direction for the company in terms of strategic diversification and transformation.

And with that I’ll now open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we will go first to Jamie Feldman with Bank of America.

Jamie Feldman – Bank of America

Great. I am sorry. I may have missed some of the assumptions behind the guidance. Barry, I am sorry, do you mind to saying again same store NOI for next year, leasing spread and year end occupancy?

Barry Lefkowitz

We talked about same store NOI, Mitchell actually talked about at his comment earlier of 3% to 5% down, yearend occupancy is 13 about 70 basis points lower than where we stood at the end of September and really didn’t comment on lease at this point. So Mitchell, would you?

Mitchell Hersh

Yeah. Jamie, in essence I did talk about the fact that we were up on cash – on renewals on cash basis of almost 6% but we did have a couple of anomalistic renewals and so I think you normalize the renewals for the quarter would been more like a 2% up on a cash basis. But the new deals, new transactions which represented almost 374,000 square feet were down about 14.5% mark-to-market if you will. So, again that’s why you combine all of this I express the fact that I thought sort of normalize basis for next year we would continue to see the trend of pressure of – negative pressure on the NOY of some 3 to 5%.

Jamie Feldman – Bank of America

Okay. And then what does it mean for FAD payout and dividend coverage next year and just what you think on FAD?

Mitchell Hersh

Yeah. Well on a CAD we expect that – to finish the year this year will be – will be – almost there 99% give or take on a CAD payout ratio and for full year ‘13 somewhere around 14% above that. So on a – that’s slightly negative cash flow of course this is not based on CAD calculations. Now we are spending money on the EI and commission we have spent close to 50 million as we currently anticipate for 2012 on just on those two categories. We continue to reinvest in our assets to keep them the highest level of quality in terms of system, court appeal and operating efficiencies and so with everything we are spending some $85 million a year and we project even a little more than that for next year about $92 million. So, we are about cash flow neutral this year, and little bit negative as we project we are ‘13.

Jamie Feldman – Bank of America

Okay. And then just turning to the apartment portfolio growth and investment. I guess big picture, you are making a big bet on the Hudson water front multi family, if you look at what’s unattached to that market it seems like there is a pretty good supply pipeline. Can you just give us your thoughts and what gives you comfort on big project you are talking about building and what do you think that supply demand picture looks like over the next several years there?

Mitchell Hersh

Well, I would acknowledge that Jersey City probably has a little more inventory potential than West New York and Weehawken, which is the Roseland nucleus if you will. I am very – with regard to Roseland we walk in the quality of life the transportation all of those elements boards extremely well. The occupancy rate of the current Roseland portfolio is hover about it’s close to full as you can get on a realistic basis 98% to 99%. Huge amenities, great amenities and amenitizing the environment is extremely important.

Regarding Jersey City, the development that we are about to undertake with iron stake is being built to the demand in that marketplace as I express, the new millennium workers, the eco boomers, small apartments, a lot of studio, very efficient, unique design, and so we’re building to the market demand in terms of the type of apartments that we think are required to satisfy the demand in the different groups and demographic groups that currently part of our acquisition of Roseland as being also a governor in the sense that if we sense that there is more supply in particular submarket, where we will be in a position of governing that.

So, this puts us in a very enviable position of building to demand in markets and there is certainly the product at Roseland has consistently built is absolutely the highest quality that really build a condo product and went there for its debt quality level throughout entire portfolio.

In other areas like greater Boston, we are in the midst of seeing a renaissance of sorts in East Boston. It’s an evolving, emerging community, much like the Waterfront in New Jersey has seen and places like Chelsea and other places and so we’re in on the ground for of that evolution. The other comments I would make getting back to New Jersey and the Waterfront which was your question. The discount on a rental basis that we have foremost that have consistently been achieved in the Roseland operating properties is very significant discount to Manhattan from as much as 60%, and I would say on average 40% discount to what you can get right across the river.

You have got places that have seen new products developed by Williams in Brooklyn that are renting right now at $60 a square foot and pro forma on a non-trended basis and pretty much everything that we are looking at and doing is about $40 a square foot. So that the other factor that we are weak intends to be and working much more competitive than a lots of our peer and competitor that in the (inaudible) area.

Jamie Feldman – Bank of America

Okay. And then just last question on Roseland, how many other than people named in a release, how many people you are bringing on board and then what’s the impact on G&A for next year?

Barry Lefkowitz

We did include the impact on G&A it’s about $18 million. We are bringing on board 250 people of which about two ten property level and rest are management and various foreign property management services vertical integration the best strong development for us obviously and administrative and then financial and reporting functions. So we’ve got about 40 people in those positions, few of them are up in the Boston region and the rest are in Short Hills.

Jamie Feldman – Bank of America

Okay. Thank you.

Mitchell Hersh

You’re welcome.

Operator

Our next question will come from Jordan Sadler with KeyBanc Capital Markets.

Craig Mailman – KeyBanc Capital Markets

Good morning. It’s actually Craig Mailman here with Jordon. Mitch, maybe could you give some color on your thoughts surrounding incremental buybacks versus putting that capital on (inaudible) for acquisitions and developments.

Mitchell Hersh

Yeah I think that clearly we are in a variable spot with respect to balance sheet liquidity and low leverage although we certainly have looked at a very carefully and we have a good feel and understanding of where the leverage will be year from now and it will be slightly higher but we’re going to continue to operate the company and manage the balance sheet to an investment grade credit. The few things we’re doing out sort of out of the box in terms of Roseland do involve secured mortgage financings will probably overtime really evolve that to much more unsecured to use our capability and our low cost of capital in the unsecured markets in that regard.

But we’re – our stock is cheap and hopefully now that we had an opportunity to talk a little more about the Roseland transaction we’ll see a little bit of a risk in that, but it was hard not to buy back some stock given the discount to net asset value and the fact that I thought it was important and the rest of Board agreed to demonstrate a commitment to what we are doing in terms of buying back some of our own stock to demonstrate that work, not only shareholder friendly but that we believe a whole heartedly in what we are doing. But we have to balance all these things. Again, and that’s why I made the comment about our balance sheet management, we know comfortably what our capacity is and although I think that will increase and expand over time. And so, we are going to balance all of these things.

Craig Mailman – KeyBanc Capital Markets

It’s fair. Then on Roseland, do you have an allocation of the purchase price and want to stabilize from now?

Barry Lefkowitz

It’s actually in the supplemental package and we break it down up fully and I can review it with you very, very quickly right in front. Okay.

It’s on page 33 of the supplement, it has an overall summary and it shows the allocated purchased price all the way to the right of a $115 million and a few pennies. The operating multi family is about 32.6 million, the operating commercial properties is about 7.7 million, the in process development projects is about 30 million, the land parcels about 38 million and the management company is about $6.8 million and then the following pages provide a detailed breakdown of all of those numbers, provides revenue per unit in the apartments, the revenue per square foot, the debt, preferred returns in the case of the institutional partners on some of these projects. It’s all there.

Craig Mailman – KeyBanc Capital Markets

I appreciate it. I apologize I make it all the way to the sub. And then just the clarification, the 275, sorry, 250 of acquisitions from multifamily, that in addition to the 150 that you guys think (inaudible)?

Barry Lefkowitz

Yeah. Well, what we’ve said in the ‘13 guidance, yes, the answer is total of about 250 that we’re that the $150 million deal, we anticipate closing that in the first week of January. So we’ll have a full year of yield on that, which we expect based on the leverage to be about a little more than 9% cash of cash yield. And then through the course of the year, at a minimum we built into our guidance, $100 million more of acquisition of stabilized product in the multifamily sector. I hope to do more, but that’s what we built into the guidance.

Craig Mailman – KeyBanc Capital Markets

Okay. And then just one last quick one, on the 250 of potential and secured bond insurance, where do you think you’re priced today?

Barry Lefkowitz

We think we’re priced today probably somewhere in the 4% range.

Craig Mailman – KeyBanc Capital Markets

Great. Thank you guys.

Barry Lefkowitz

You’re welcome.

Operator

Our next question comes from Michael Knott with Green Street Advisors.

Michael Knott – Green Street Advisors

Recent spreads for next year, you mentioned that normalize you thought it was 2% up but there was something that was down 14%. I am sorry I didn’t catch that, would you mind repeating that?

Mitchell Hersh

Not at all. What I said was on the 374,000 square feet of new deal activity then on a cash basis that is for GAAP, I mean the book already closed. We are down about 14 plus percent on mark and as expiring leases.

Michael Knott – Green Street Advisors

Okay. So if you – if ignoring just sort of next year only but if you had to think about the overall portfolio, where is that today versus market in place versus market?

Mitchell Hersh

I mean I would say that on average we had some particularly the large not large but high rent district explorations. So I would say on average we are probably down mark-to-market 8% to 10%.

Michael Knott – Green Street Advisors

Okay. And that’s on a gross basis?

Mitchell Hersh

Yeah.

Michael Knott – Green Street Advisors

Okay. And then just with respect to multifamily, the 100 million and 150 million deals next year, those would be wholly owned, right?

Mitchell Hersh

Correct.

Michael Knott – Green Street Advisors

Okay. And then just as you think about longer term financing of if you can reach that 30% of NOI target for multifamily, do you expect that’s five years or more? And then do you anticipate asset sales just to fund some of that, just how do you think about actually getting to that number over the longer term financing wise.

Mitchell Hersh

I think it’s a five year period maybe it’s plus or minus long order but its five years on average. It equates to something like 850 billion of assets. It – so you can do the math on an annual basis about 360, 370 but I don’t expect to start at that velocity help to grow into it. And we are going to be more active in part of that capitalization in asset sales.

We built into a model 75 million and I actually believe we can do a little more than that and naturally you have to balance everything Michael because you can’t sell cash flowing assets without buying cash flowing assets and so we get that. And – but I am hopeful that the market recognizes that strategic importance of this diversification and rewards us in some multiple expansion I know you personally have you – personally but professionally had some different thoughts on that and that we will have a variety of (inaudible) capital at us over that five year period of time as well as recycling that.

Michael Knott – Green Street Advisors

Okay. Thanks. But just two more follow-up questions on that. Thanks for that level of detail. The 75 million of asset is that for annum over that five year period?

Mitchell Hersh

I would say yes.

Michael Knott – Green Street Advisors

And that is partly included in guidance for next guidance I might have missed that...

Mitchell Hersh

Yeah we did we said 75 million in guidance for next year.

Michael Knott – Green Street Advisors

Okay. Sorry about that. And then on that just on the 1.85 billion of multifamily that you threw out that would include your large development in Jersey City both phases I guess and then what would sort of be the average yield or cap rate that you are planning on associated with that one 1.85?

Barry Lefkowitz

First of all, it really doesn’t include Jersey City, right now at least on Phase 1, that’s a standalone joint venture, where it is 85% Mack-Cali so it’s kind of ours. But no, I am just looking at the total multifamily without that for the moment. We’ve anticipated a 5% yield on the multi family I would tell you that could vary asset to asset because of the portfolio nature and the minority interest we were able to do the Roseland deal at about 5.25 we are in the process of doing a development deal that we haven’t talked about yet with Roseland where we actually expect to stabilize yield to be about 6.7% but naturally the market at least the sales market for stabilized product is closer to 5 at this juncture. And in certain cases it’s bringing at 4.5, but we’ve built in our assumptions 5% yield.

Michael Knott – Green Street Advisors

Okay. And then if I can just ask one more follow up question on the 75 million of asset sales what kind of cap rate you expect may be at least for next year, I am hoping you don’t for the whole five years but...

Barry Lefkowitz

Right. About 6%, 6 to 6.5 on the target that we have identified for the 75.

Michael Knott – Green Street Advisors

Are those entire quality assets or are those lower quality assets with vacancy and that’s why that number is low?

Barry Lefkowitz

The number of the asset actually that we factored into the guidance is a higher quality asset that has no sort of strategic purpose for us. The sales for example on Strawbridge, represent about 10% cap rates, but building a 63, aggregate of the building 62% at least with not too long, about three to four years remaining on those 62% tenants. So, that kind of gives you a sense of what the market is today.

We’re selling, also to give you a sense of the market, another asset that we own a very minority position in with JP Morgan right now and it’s a single tenant building, high quality, but it’s not a public company that the occupancy of the tenant. And that’s probably going for sale, we book in the first round of bids, we’ll see how the second round bids come in. It’s probably in the low 7% cap rate range. But that 7% cap rate range equates to about $325 a square foot. So there are cases where the ultimate price per pound if you will overwrite cap rates.

Michael Knott – Green Street Advisors

Thank you.

Mitchell Hersh

You’re welcome.

Operator

We have time for one more question today. And that question will come from Glen with ISI.

George Arbach – ISI

Hey, guys. This is George Arbach.

Mitchell Hersh

Hi.

Barry Lefkowitz

Hey, George.

George Arbach – ISI

Mitchell, just a one clarification. Is the Roseland deal $115 million of equity value or asset value?

Mitchell Hersh

It’s $115 million of equity value.

George Arbach – ISI

Thanks. And I guess taking forward four development starts in residential platform and acquisitions what are you thinking in terms of capital spend or residential in years ahead?

Mitchell Hersh

I hope that we can spend couple of hundred million dollars a year in the years ahead. As I said if we are going to and ultimately if we are going to reach a target of 30% on a static basis anyway of NOI over five year period, I identify the fact that we need to have acquire or taking in the fold a goal of 1.8 billion more or less of assets. So for the next year I anticipate if we can spend $200 million we are doing well.

George Arbach – ISI

Great. Thanks for that. And last one more question. In the 2013 guidance are there any buybacks assume next year?

Barry Lefkowitz

No, we haven’t. We have been more as I said we went into the mark we bought back a $11 million worth and we haven’t included anything in the guidance.

George Arbach – ISI

Great. Thanks very much.

Mitchell Hersh

You’re welcome. Operator, is that the end of the queue.

Operator

We actually had another follow-up question from Jordan Sadler of KeyBanc Capital Markets.

Mitchell Hersh

Sure.

Craig Mailman – KeyBanc Capital Markets

Hi, guys it’s Craig again. Just a few quick ones. One the G&A you told 80 million for Roseland is it fair to assume just $4.5 million uptick in sequential run rate is that the way to think about it for ‘13?

Barry Lefkowitz

Yeah I mean the total – the total was about 36 – 37 for Mack-Cali and another 18, that was 56 million I think was the number and that’s the run rate.

Craig Mailman – KeyBanc Capital Markets

Okay. Perfect. And then on the balance of timing when do you guys anticipate or what’s in the (inaudible) for the timing?

Barry Lefkowitz

Well right now we’ve modeled in a end of first quarter sometime in the late later part of the first quarter of 250 million at somewhere around 4% and it appears that at least the – we’ll see what happens with the election but the FAD of course came out with new policies. So right now that we could do an issue sub 4%.

Craig Mailman – KeyBanc Capital Markets

Okay. Then just one last one. Is the Formula 1 Race delayed and (inaudible) do anything to the development and any you guys maybe getting from them for infrastructure?

Barry Lefkowitz

No, they are paid in full on infrastructure so that’s not a concern obviously we are all excited about the raise as are the various municipalities that both benefit from a unit from an infrastructure perspective, road improvements and the like. It might slightly delay the retail component and what we call the large four or five which we expect to be fully occupied by Formula 1 and use it sort of as their Disney Show if you will, Disney Store where they are advertising and selling the NASCAR and Formula 1 type, like the NBA store in New York. And it might slight lead to way that, but we don’t expect any material delays and they are paid in full on infrastructure.

Craig Mailman – KeyBanc Capital Markets

Great. Thanks.

Mitchell Hersh

You’re welcome.

Operator

We do have another follow up question from James Feldman with Bank of America.

Jamie Feldman – Bank of America

Yes. Hey thanks. Talking to brokers about what’s happening in New York there is a lot of talk about tenants trying to move some back office out of the city. Are you guys having any new conversations about that and potential developments or just kind of what are you seeing right now in that front?

Mitchell Hersh

We have three proposals out right now. And but I don’t talk about them Jamie because we have seen this exercise occur before. But we do have three significant proposals out on closet 4 which would be new development, new construction of that, 1.1 million square feet, the largest requirement is to going in 800,000 square feet and it’s hard to predict I know that all of these companies are preparing what they call their metrics and they were all talking both New Jersey and New York about dialing for dollars if you will and who is going to give them more favorable benefit and incentive programs and so the decisions are very, very slow to evolve or come to fruitarian.

But we do have those out and that would certainly justify new construction at the Waterfront and frankly given some of the multifamily explosion that’s occurred for a whole host of reasons later family formation, the fact that a lot of MT nesters have moved to a rental apartments. I can’t tell you how many people that you never would have imagined would move to the Waterfront, have talked about doing so to give them more flexibility and the lifestyle and so forth.

But the sheer fact that a lot of the land inventory has been rezoned for multifamily and we did some of that down at the harbor side removed some of the competitive set from the office side in terms of availability to build new trophy type class A buildings and it’s diminished our competitive set, which clearly could prove to be a benefit to us.

So, it’s hard to tell when and if these decision will be made. There is no question that every office market is under some degree of pressure. We have virtually filled 125 Broad Street, downtown and taken care of some of the upcoming vacancy of the Oppenheimer, they have taken care of virtually almost all of it with a recently signed lease. And it’s very competitive out there and we are in a good position to compete in New Jersey City on a both a quality level and a full vital service well monetized environment for both the office and multifamily. So that’s what we are seeing right now.

Jamie Feldman – Bank of America

And you mentioned three potential leases a largest in 800,000, how long those have been in discussions, these been around for a couple of years, this is actually pretty near?

Mitchell Hersh

I mean I would tell you that some of the banks talked to us as long as two years ago but they are not in really active discussion as clearly pressure on financial services as a result of that. These are not within financial service sector and discussion to one RSP we actually responded to last week. I have done several presentation to brokers and executive management of the company and you know it’s a well company but I don’t see any purpose gain in identifying and on this call. It’s New York centric company that has six or seven locations and looking at consolidation.

And literally we’ve responded to the RSP last week and other two which are more in a range 400,000 to 500,000 square foot and I still able to building with that kind of commitment are probably three or four months. But active communication they haven’t gone (inaudible).

Jamie Feldman – Bank of America

Would they also consider down town I mean I guess what I’m trying to take out is it back office put off or is this just moving out of the city?

Mitchell Hersh

It’s moving out of the city at least in the case clearly well two out of three are moving out of the city.

Jamie Feldman – Bank of America

And we’ll have no more operations there?

Mitchell Hersh

Yeah.

Jamie Feldman – Bank of America

Okay. And then just in terms of like a more traditional suburban market that you think interested of campuses these kind of tenants that would actually want to move further out or is really just the (inaudible)?

Mitchell Hersh

I would say that the trend right now is water front where we are more urbanized environment where there is a higher monetize base and at public transportation because especially in the businesses that are looking at (inaudible) right now they are media type companies, they want certainly to get useful professional employees that and these employees might live where the action is and so I would say that this urban markets are steady as she goes, walk and tackle not a huge influx of new demand, we’ve seen – we’ve been the beneficiary a couple of life science companies.

We actually competed with Cambridge, Massachusetts on one and then chose a New Jersey suburban location and there are tenant now and they are already expanding with us. So, there are those instances which clearly are very positive for us. But I would say that these larger requirements are definitely water front requirements.

Jamie Feldman – Bank of America

Okay. And then one follow up on Roseland, if I am corrected you have no incremental stand the building is in process now and your incremental stand would on future projects?

Mitchell Hersh

Yeah that’s the bulk of everything at the front part of the acquisition it is a zero spend. We are looking at, we are for example Albert Park an opportunity in one particular development project that’s about to be undertaken where we can invest more of Mack-Cali capital and we are not talking about big dollar. We are talking about something million dollar investments and really kind of choose our returns. So, we are clearly if we can get the right and I believe we can the right governance we will be doing that. But if buying large it’s zero spend.

Jamie Feldman – Bank of America

Okay. All right, thank you.

Mitchell Hersh

You’re welcome.

Operator

And we do have one final question in queue, the question comes from Gabriel with UBS.

Unidentified Analyst

Hi guys this is a following up on Roseland transaction question. Just a question on the existing partners in what I guess the kind of the end game is there in terms of expectations of them being launched from holders or you guys expecting to take a bigger shares of those assets going forward?

Mitchell Hersh

Well I mean the existing assets are pretty well defined in terms enrolling in our filings as to what our equity participation is, which ranges from approximately 25%, is one that sets 7.5%, but by enlarge they are 25 to 50%.

We don’t expect that those grouping of six operating assets, there will be a change in ownership. With respect to the developments, some of that’s evolving. Right now what’s in the pipeline are again zero spend, institutional partners that have expensive preferred positions, but, again, no money on our part. Some of that might change as we develop stronger relationships from the Mack-Cali Roseland perspective with some of these institutional partners.

But what we’re going to focus on in addition to what is the very healthy queue both in terms of developments in progress, inventory for future development is new opportunities, both in terms of utilizing our land bank, utilizing even some of our operating properties at Roseland principals and I literally that was the scenario of the community yesterday and discussed utilizing the parking lot because of the unique capacity of the parking lot and getting over portion of it and taking part of a large site that is currently occupied as office and building a multifamily community.

And so these are some of the unique avenues to success that we will have in binding our skill set, the track that particularly in New Jersey. We bode in part of the political landscape and government and approval in jurisdictional landscape together although different sectors for a many years.

And now combining that aspect and that communication which I think that one of the two – certainly one – less than handful of most highly respected multifamily developers in entire North East give us the ability to be creative that way and to take underutilized assets that are and repurpose them and that’s good for the town particularly in a declining a tax based environment and it’s good for us and our shareholders.

Unidentified Analyst

Thank you, guys.

Barry Lefkowitz

You are welcome.

Mitchell Hersh

Okay. Well, I hope that we had a very thoughtful and thought provoking discussion today. We are energized, we are excited by this acquisition. We know that execution at the end of the day as what counts and we are up for the tax. We have now teamed up with best in class in the multifamily sector and lots of opportunities on horizon and we are going to do what we say we are going to do and expand that part of the business in a very fruitful and productive way.

And so I want to thank you for all the patience today with a lengthy discussion of this evolving transformational diversification of Mack-Cali and we look forward to reporting further results to you if not before certainly next quarter. Everybody have a good day. Thank you.

Operator

And once again ladies and gentlemen, that does conclude today’s call. Thank you for your participation and have a great day.

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